It’s been an unprecedented year for financial markets and it’s our opinion that the investment thesis for bitcoin has never been stronger. Year-to-date performance as of May 28th across major asset classes demonstrates that bitcoin is behaving exactly as we expected it to:
The primary investment thesis for bitcoin calls for it to act as a hedge against many forms of global calamity while simultaneously acting as a venture bet on the world's first and most innovative digital asset. So while not strictly a replacement for gold’s place in a diversified portfolio, it makes a strong case to be treated as a complementary piece. One argument against bitcoin is its limited history and the fact that it was born at the tail end of the 2008 economic crisis and therefore was simply a beneficiary of a strong equity bull market. However, that is simply not a fair characterization as not only has bitcoin been the best performing asset of the past 10 years, it has also been the best performing asset following the COVID-19 market crash. Even through this volatile period, bitcoin has significantly outperformed gold year to date. The chart below shows how assets recovered after March's liquidity crunch when investors fled the market. The evidence indicates that investors are allocating far more selectively following the crash and many are selecting to add bitcoin to their portfolios.
As the dust settled from the initial shock of the crash, bitcoin’s price rose dramatically, indicating that investors continued to view the asset as a bonafide investable asset. We believe that as this opinion begins to take hold, bitcoin is well positioned to outperform gold through the rest of this year and next, especially as the effects of currency debasement manifest as inflation. We’ve long theorized that institutional investors would allocate to bitcoin as it proves its resilience (e.g., through the liquidity crisis of this year). In fact, recently, Paul Tudor Jones (PTJ), one of wall streets’ most prolific macro fund managers, allocated approximately 2% of his $40B fund’s assets to bitcoin. His primary motivation is his belief that bitcoin is set to outperform all other inflationary hedge assets. We’ve hosted his bitcoin investment note here for you to read at your leisure (and we highly recommend reading it) but there were several sections which deserve to be highlighted. In PTJ’s exercise of seeking which asset would best protect against run-away increase in money supply, he wanted to ensure that the assets invested in would react to the particular risks he is concerned about and attempting to protect against.
The risks which are manifesting today are not new, but rather are a continuation of those which were appearing in 2008. Therefore, it’s important to observe asset reactions over the prior decade in addition to the reaction over the past 6 months. But above else, it’s important to keep it simple. Overthinking the philosophy of value or monetary premium can cause one to miss the burgeoning asset class pioneered by bitcoin. PTJ had regrettably missed it previously and has committed not to ignore it any longer.
We’re extremely bullish on bitcoin’s 18 month outlook.